by NICK SHAXSON
Whirring away unseen and discreetly in the background of the global financial architecture lie tax havens. They are essential to the global flow of ‘hot’money, and act as the transmission lines for international financial meltdowns. In the most recent crash, they were used as dustbins to park poorly performing loans linked to sub-prime mortgages.
But tax havens also act as the key infrastructure for corruption, a highway for capital flight and tax evasion, robbing already poor African states of vital public funds. Apart from some worthy exceptions, such as the South African Revenue Service, African administrations have been powerless in stopping corporations from using offshore accounting.
…
James Boyce and Léonce Ndikumana – two researchers at the University of Amherst, Massachusetts – estimated in a 2008 study of 40 African countries that capital flight from 1970 to 2004 added up to $420bn, or $607bn if you account for interest earnings. That is compared to these countries’ external debts of “only” $227bn, making them net creditors, not debtors, to the rest of the world. But there is a snag, according to the report, and it is a big one: “The subcontinent’s private external assets belong to a narrow, relatively wealthy stratum of its population, while public external debts are borne by the people through their governments.”
The formula is simple: African countries borrow, wealthy elites steal a lot of the money and park it in tax havens. African citizens foot the bill in terms of poorer public services, higher taxes, weakened governance and more debt. Tax havens and rulers get richer. Countries have almost no hope of getting the loot back.
The Africa Report for more